Pork producers are putting on the pounds, some 75 million more pounds of pork than USDA estimated just a month ago. At least that is the increase in the fourth quarter pork production projection, which now stands at 6.1 billion pounds or 8% over similar figures in 2006. That impacts, not only the pork market, but the market for other livestock and meat prices.

Pork producers have been operating in the black for nearly 3 years, but increased production has driven prices to annual lows in the cycle, says USDA in its recent livestock outlook. $40 is the calculated breakeven price compared to the $38-$39 prices that will average for the fourth quarter.

Cold storage stocks are not increasing, indicating that domestic and foreign consumers are buying the record level of production. Recently, there has been an 8% increase in supplies that caused wholesale prices to drop. Comparatively, in 1998 a 10% increase at the same time of the year resulted in a 31% drop in wholesale prices. Since the pork market has not fallen as steeply, USDA economists say the export market has bought much of the increased slaughter rate, another benefit of the lower valued dollar and expanding demand for pork. Fourth quarter exports are forecast at 860 million pounds, which is triple the amount in 1998. In October alone, exports were 31% higher than October 2006, and 81% of the export trade went to only 5 nations. Domestically, higher beef and poultry prices are making pork more competitive in the meat case.

In the beef market, heavy cow slaughter continues, which began with the shortage of forage supplies. But economists say fall rains have re-established pastures in the Southeast and Southwest, and the rate of cow slaughter should decline. Even with high milk prices, dairy cow slaughter had been high because of high corn and feed prices. 2006 saw an 18% increase in cow slaughter over 2005, but in 2007, the rate was about 7% above 2006. Some analysts believe the cattle cycle is now in the liquidation phase, with only a small percentage above the cycle low of 41.851 million head 4 years ago.

Calf slaughter is well ahead of the rates for the past two years, and should have a high impact on the January 1 cattle inventory. USDA says that could lead to reduced supplies of feeder cattle and the potential for reduced beef supplies the next two years. Feeder cattle prices are declining because of the lack of wheat pasture available for grazing. USDA believes wheat producers do not want to risk crop damage in the wake of high wheat price prospects for next spring. Additionally, the profit picture for cattle feeding is negative, but there have been some opportunities for feeders to hedge at $1 per pound or more into the coming spring. The commodity beef market has risen in the past four weeks, but competitive pressure has not insured profits for packers.

USDA economists say there are strong prices for fed cattle; but slaughter numbers are high for heavy weight cattle, there is a high share of choice cattle, and there are relatively high numbers of cattle that have been on feed for 6 months. Retail prices for choice beef are relatively high, cumulative production numbers are ahead of 2006, and with disappearance being down slightly from 2006 USDA says consumers may see higher prices.

Broiler production in the first 10 months of the year totaled 30 billion pounds, but that is 0.3% under 2006. Live weights have been slightly higher, but USDA poultry specialists any production increases will come from the larger number of chicks being placed for growout. That rate has been nearly 5% more than last year. Cold storage grew only slightly from the third quarter, but is 11% under 2006 and stocks are significantly lower than last year. With a slowdown in exports and greater production, stocks are expected to build. That will pressure prices downward, which have been higher in 2007 than in 2006.

Summary:
Increased pork production continues to weaken pork prices, which have slipped into the red for most producers. Cold storage stocks have been increasing but not at the rate seen during the 1998 decline in pork prices. Cow slaughter continues at high rates as the industry’s liquidation phase has brought numbers near the low point of the last cycle. Calf slaughter is also rising with the strain on feedlot profitability, and that means lower beef supplies in the next two years. Poultry production is steady, but placements have increased pointing to higher production, and pressure on prices. However, cold storage numbers are down.